Egypt Sells $600 Million at FX Auction for Commodity Imports

By Alaa Shahine and Anas Barakat -
Apr 14, 2013

Egypt’s central bank sold a record
$600 million to local lenders today to finance imports of basic
commodities such as wheat after the cash-strapped government
secured a $3 billion support pledge from Qatar.

The regulator sold all of the dollars it offered at the
exceptional auction at a weighted average of 6.872 pounds each,
a 0.2 percent depreciation for the local currency from the last
currency sale on April 11, according to central bank data on
Bloomberg. The pound has weakened to a record low since the
start of the auctions in December.

Egypt, which has limited access to the U.S. currency this
year to stem a drop in foreign reserves, is struggling with fuel
shortages and power cuts amid an economic slowdown that’s
compounding the political crisis facing President Mohamed Mursi.
The amount offered at today’s auction is 15 times greater than
the amount the central bank typically makes available at regular
currency sales.

“There are a lot of people queuing in line for hard
currency,” Mona Mansour, chief economist at Cairo-based
investment bank CI Capital Holding, said by phone. “The import
rationing has eased because they got funds from abroad,” she
said, referring to the central bank.

Black Market

The central bank offered the funds today to fulfill
“existing requests at banks to finance imports” of strategic
goods, according to a statement on its website. It listed tea,
meat, poultry, fish, medicines, production machinery among the
commodities. Purchases by the state-run General Authority for
Supply Commodities aren’t included, it said. Egypt is the
world’s biggest buyer of wheat and also relies on imports for
some of its energy needs.

Egyptian foreign reserves have plunged more than 60 percent
since the 2011 revolt that toppled Hosni Mubarak to $13.4
billion in March, enough to cover less than three months of
imports. To curtail the drop, the central bank started limiting
local lenders’ access to dollars at auctions held since Dec. 30.
The pound has weakened about 10 percent to 6.8819 a dollar
since, according to Commercial International Bank Egypt SAE (COMI)
prices.

The Egyptian government is holding talks with a team from
the International Monetary Fund for a $4.8 billion loan that
officials say will unlock more assistance from global lenders
and donor nations. Additional funds will help bridge the gap
between the official rate and the “black market,” Mansour
said. The central bank said it will consider holding more
commodity-related sales depending on “market needs.”

Weakening Currency

The pound weakened to 7.85 a dollar in unregulated trading
earlier this month, according to three money exchangers
interviewed by Bloomberg News.

The Egyptian economy may expand 1.4 percent in the fiscal
year that ends in June, according to HSBC Holdings Plc (HSBA) forecasts
released this month, down from an earlier estimate of 2.1
percent. Egypt’s economy hasn’t expanded that slowly since the
early 1990s, and it achieved average growth of 4.9 percent in
the decade before Mubarak’s overthrow, according to IMF data.